Estonia

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GEOGRAPHY

Between 57.3 and 59.5 degrees latitude and 21.5 and 28.1 degrees longitude, Estonia lies on the eastern shores of the Baltic Sea on the level, northwestern part of the rising East European platform. Average elevation reaches only 50 meters (160 ft.).

The climate resembles New England's. Oil shale and limestone deposits, along with forests that cover 47% of the land, play key economic roles in this generally resource-poor country. Estonia boasts more than 1,500 lakes, numerous bogs, and 3,794 kilometers of coastline marked by numerous bays, straits, and inlets. Tallinn's Muuga port offers one of Europe's finest warm water harbor facilities.

Estonia's strategic location has precipitated many wars fought on its territory between other rival powers at its expense. In 1944, the Union of Soviet Socialist Republics (U.S.S.R.) granted Russia the trans-Narva and Petseri regions on Estonia's eastern frontier. Russia and Estonia signed a border treaty in 2005 recognizing the current border. Estonia ratified the treaty in June 2005, but Russia subsequently revoked its signature to the treaty, due to a reference the Estonian Parliament inserted regarding the Peace Treaty of Tartu.

PEOPLE

Estonians belong to the Balto-Finnic group of the Finno-Ugric peoples, as do the Finns and the Hungarians. Archaeological research confirms the existence of human activity in the region as early as 8,000 BC, but by 3,500 BC the principal ancestors of the Estonians had arrived from the east.

Estonians have strong ties to the Nordic countries today stemming from deep cultural and religious influences gained over centuries during Scandinavian colonization and settlement. This highly literate society places great emphasis upon education, which is free and compulsory until age 16. About 20% of the population belongs to the following churches registered in Estonia: Estonian Evangelical Lutheran Church, Estonian Apostolic Orthodox Church, Estonian Orthodox Church subordinated to the Moscow Patriarchate, Baptist Church, Roman Catholic Church, and others.

As of November 2006, 84.6% of Estonia's population held Estonian citizenship, 7.6% were citizens of other countries (primarily Russia), and 8.8% were of undetermined citizenship.

Written with the Latin alphabet, Estonian is the language of the Estonian people and the official language of the country. Estonian is one of the world's most difficult languages to learn for English-speakers: it has fourteen cases, which can be a challenge even for skilled linguists. During the Soviet era, the Russian language was imposed for official use.

HISTORY

AncientEstonians are one of the longest-settled European peoples and have lived along the Baltic Sea for over 5,000 years. The Estonians were an independent nation until the 13th century A.D. The country was then subsequently conquered by Denmark, Germany, Poland, Sweden, and finally Russia, whose defeat of Sweden in 1721 resulted in the Uusikaupunki Peace Treaty, granting Russia rule over what became modern Estonia.

First Period of IndependenceIndependence remained out of reach for Estonia until the collapse of the Russian empire during World

War I. Estonia declared itself an independent democratic republic in November 1918. In 1920, by the Peace Treaty of Tartu, Soviet Russia recognized Estonia's independence and renounced in perpetuity all rights to its territory.

The first constitution of the Republic of Estonia was adopted in 1920 and established a parliamentary form of government. Estonia's independence would last for 22 years, during which time Estonia guaranteed cultural autonomy to all minorities, including its small Jewish population, an act that was unique in Western Europe at the time.

Soviet PeriodLeading up to World War II (WWII), Estonia pursued a policy of neutrality. However, the Soviet Union forcibly incorporated Estonia as a result of the Molotov-Ribbentrop Pact of 1939, in which Nazi Germany gave control of Estonia, Latvia, and Lithuania to the Soviet Union in return for control of much of Poland. In August 1940, the U.S.S.R proclaimed Estonia a part of the Soviet Union as the Estonian Soviet Socialist Republic (E.S.S.R.). The United States never recognized Soviet sovereignty over Estonia, Latvia, or Lithuania.

During the course of WWII, Germany occupied Estonia for three years. In 1944, Stalin retook the country and resumed the mass deportations of ethnic Estonians to Siberia that had been initiated in 1941. Together with migration into Estonia from other parts of the Soviet Union, this resulted in the share of ethnic Estonians in the country decreasing from 88% in 1934 to 62% in 1989.

Re-establishing IndependenceIn the late 1980s, looser controls on freedom of expression under Soviet leader Mikhail Gorbachev reignited the Estonians' call for self-determination. By 1988, hundreds of thousands of people were gathering across Estonia to sing previously banned national songs in what became know as the "Singing Revolution."

In November 1988, Estonia's Supreme Soviet passed a declaration of sovereignty; in 1990, the name of the Republic of Estonia was restored, and during the August 1991 coup in the U.S.S.R, Estonia declared full independence. The U.S.S.R Supreme Soviet recognized independent Estonia on September 6, 1991. Unlike the experiences of Latvia and Lithuania, Estonia's revolution ended without blood spilled.

Estonia became a member of the United Nations on September 17, 1991 and is a signatory to a number of UN organizations and other international agreements, including IAEA, ICAO, UNCTAD, WHO, WIPO, UNESCO, ILO, IMF, and WB/EBRD. It is also a member of the Organization for Security and Cooperation in Europe (OSCE).

After more than 3 years of negotiations, on August 31, 1994, the armed forces of the Russian Federation withdrew from Estonia.

Modern Period: 1990s - TodayIn 1992, a constitutional assembly introduced amendments to the 1938 constitution. After the draft constitution was approved by popular referendum, it came into effect July 3, 1992. Presidential elections were held on September 20, 1992, with Lennart Meri as victor. Lennart Meri served two terms as president, implementing many reforms during his tenure. Meri was constitutionally barred from a third term. Arnold Rüütel became president in 2001; Toomas Hendrick Ilves in 2006. Since fully regaining independence, Estonia has had 13 governments with 7 different prime ministers elected: Mart Laar, Andres Tarand, Tiit Vähi, Mart Siimann, Siim Kallas, Juhan Parts, and Andrus Ansip.

Estonia began to adopt free-market policies even before it declared independence in mid-1991 and has continued to pursue reform aggressively ever since. For example, the government set privatization as an early priority and has now completed the process of putting most major industries in private hands. After independence the Government of Estonia took steps to simplify the tax system. Tax evasion is now relatively low by regional standards. Income tax is levied at a flat rate, a principle supported by all the major parties except the Center Party, for which a progressive tax system remains a keystone policy. Budget performance is exceptionally strong; the IMF projected a surplus of 3.4% of GDP in 2006.

An integral part of Estonia's transition to a market economy during the early 1990s involved reorienting foreign trade to the West and attracting foreign investment to upgrade the country's industry and commerce. In 1990, only 5% of Estonia's foreign trade was with the developed West; only 21% of this trade represented exports. About 87% of Estonia's trade was with the Soviet Union, and of that, 61% was with Russia. Estonia's main foreign trading partners today are Sweden, Finland, Germany and others in the West. Russia's share of Estonia's trade is less than 10%.

The introduction of the Estonian kroon in June 1992, with only U.S.$120 million in gold reserves and no internationally backed stabilization fund, proved decisive in stabilizing foreign trade. For stability, the kroon was pegged by special agreement to the deutsche mark (DM) at EKR8 = DM1 and later to the Euro. The new Estonian currency became the foundation for rational development of the economy. Money began to have clear value; the currency supply could be controlled from Tallinn, not Moscow; and long-term investment decisions could be made with greater confidence by both the state and private enterprise. The central bank is independent of the government but subordinate to the parliament. In addition to its president, the bank is managed by a board of directors, whose chair is also appointed by parliament.

The fall of the Soviet Union and the rapid contraction of Estonia's market to the East during the early 1990s caused Estonia's economy to shrink 36% from 1990 to 1994. But economic reforms in Estonia and the ability of its economy to reorient toward the West allowed Estonia's economy to pick up in 1995 with 4.6% growth and 4.0% growth in 1996. Russia's financial crisis in 1999 led to the only year of decline in Estonia's GDP since 1994--but the 0.7% decline was relatively small.

The 1994-2004 period was mainly dominated by the Estonian EU and NATO accession processes. Estonia was the first Baltic country to start direct accession talks with the EU. Estonia applied to join the EU in November 1995 and, while participating in accession negotiations, continued its program of major economic and social reforms. This gave Estonia a good opportunity to take into account EU objectives and to exploit the experience of existing EU member states when carrying out reforms. Examples of reform in the social area included the launch of unemployment insurance in 2002 and the 1999 implementation of the Occupational Safety and Health Act, which regulates safety and health requirements in the work place as well as the organizational aspects of the occupational health system.

In 1999, Estonia joined the World Trade Organization, adding to its previous membership of the IMF, World Bank and the European Bank for Reconstruction and Development.

In November 2002, Estonia was one of seven Central and East European countries to be invited to join NATO; it officially became a member of NATO on March 29, 2004. In just fifteen years since re-establishing independence, Estonia has proven itself to be an excellent Ally, having built a military capable of participating in ever more complex and distant military operations.

EU accession negotiations proceeded rapidly, and Estonia joined the EU in May 2004, along with nine other countries, including its Baltic neighbors. The final decision was conditional on the outcome of a national referendum which was held in September 2003 and returned a large majority in favor of membership.

Estonia has developed into a strong international actor, through its membership in the EU and NATO; it is a capable advocate and promoter of stability and democracy in the former Soviet Union and beyond. Estonian troops have been in Afghanistan since 2002 and Iraq since 2003. It participates in the NATO training mission in Iraq and in the international police training mission for Iraq in Jordan. Estonia also provides peacekeepers for international missions in both Bosnia and Kosovo and contributes to EU battlegroups and NATO Response Force rotations. It supports democratic developments in key countries of the former Soviet Union and beyond by providing training to government and law enforcement officials as well as non-governmental organizations. It has valuable experience to offer new democracies from its own recent history, and it works hard to promote democracy, freedom, and stability worldwide.

GOVERNMENT

Estonia is a parliamentary democracy, with a 101-member parliament (the Riigikogu) and a president who is elected indirectly by parliament or, if no candidate wins a two-thirds majority in parliament, by an electoral college composed of members of parliament and of local government representatives. Estonia holds presidential elections every five years. The last presidential election was in 2006. The President serves a maximum of two terms. The President is also the Supreme Commander of the National Defense of Estonia.

Parliamentary elections take place every four years; members are elected by proportional representation. The most recent elections took place on March 4, 2007. A party must gather at least 5% of the votes to take a seat in Parliament. Citizens 18 years of age or older may vote in parliamentary elections and be members of political parties. In addition, resident non-citizens and those who have lived permanently in the area for at least 5 years preceding the election may vote in local elections, although they may not run for office.

After parliamentary elections, the President traditionally asks the party with the most votes to form a new government. The President chooses the Prime Minister--usually the leader of the largest party or coalition in the Parliament--with the consent of the parliament to supervise the work of the government. The Estonian government has a total of 14 ministers.

At the local level, Estonians elect government councils by proportional representation. The individual councils vary in size, but election laws stipulate minimum size requirements depending on the population of the municipality.

Estonia's Supreme Court, the Riigikohus, has 19 justices, all of whom receive lifetime tenure appointments. The parliament appoints the Chief Justice on nomination by the President.

Estonians may vote via the Internet in local and parliamentary elections.

POLITICAL CONDITIONS

Currently, half a dozen parties represent Estonia's 1.3 million citizens. The Reform Party, the Isamaa and Res Public Union, and the Social Democrats form the current government with 31, 19, and 10 seats in parliament, respectively. Other major parties include the Centre Party, the Estonian Greens, and the People’s Union.

Reform Party Chairman Andrus Ansip is the current Prime Minister of the coalition government.

Toomas Hendrik llves (Social Democrat Party), a former Ambassador to the United States, two-time Minister of Foreign Affairs, Estonian parliamentarian, and a former member of the European Parliament, is the President of Estonia. President Ilves narrowly defeated incumbent Arnold Rüütel in an electoral-college vote in September 2006, and he took office on October 9, 2006.

ECONOMY

Estonia is considered one of the most liberal economies in the world, ranking 7th in the Heritage Foundation's 2006 Economic Freedom Index (above the United States and just below the U.K.). Hallmarks of Estonia's free, market-based economy include a balanced budget, a flat-rate income tax system (the first in the world), a fully convertible currency pegged to the Euro, a competitive commercial banking sector, and a hospitable environment for foreign investment, including no tax on reinvested corporate profits (tax is not levied unless a distribution is made).

Estonia's liberal economic policies and macroeconomic stability have fostered exceptionally strong growth and better living standards than those of most new EU member states. The IMF projected real GDP growth at over 9% in 2006, slightly below its 2005 level. The economy benefits from strong electronics and telecommunications sectors; the country is so wired that it is nicknamed E-stonia. Bars and cafes are universally equipped with wireless connections. Skype, designed by Estonian developers, offers free calls over the Internet to millions of people worldwide. Tourism has also driven Estonia's economic growth, with beautifully restored Tallinn already a Baltic tourist landmark.

By the late 1990s, Estonia's trade regime was so liberal that adoption of EU and World Trade Organization (WTO) norms actually forced Estonia to impose tariffs in certain sectors, such as agriculture, which had previously been tariff-free. Openness to trade, rapid growth in investment, and an appreciating real exchange rate have resulted in large trade deficits in recent years. In the first six months of 2006, exports and imports both grew rapidly, with growth reaching 30.8% and 31% year-on-year, respectively.

Estonia supplies more than 90% of its electricity needs with locally mined oil shale; however, it imports all of its natural gas and petroleum (roughly 30% of total energy consumption) from Russia. Alternative energy sources such as wood, peat, and biomass make up about 9% of primary energy production. An undersea electricity cable inaugurated in December 2006 will allow Estonia to export electricity to Finland.

Notwithstanding these many achievements, the economy of Estonia still faces challenges. The income differential between Tallinn and the rest of the country has widened in recent years as the cost of living differential has narrowed. The formerly industrial northeast section of Estonia suffered from economic depression as a result of plant closings in the early 1990s, although even this region has experienced strong growth in the last two years. The labor force is shrinking due to low birth rates and emigration. This tight labor market and the government's restrictive labor and immigration policies have led to wage pressure and challenges to future competitiveness. Inflation above 3% has forced the government to push back adoption of the Euro from its original target of 2007.

The Estonian Finance Ministry predicts that the economy will grow by 8.7% in 2007. This compares with an estimated EU-wide GDP growth rate of 2.1% in 2006 and 2.4% in 2007. The unemployment rate in the second quarter of 2006 was 5.4%, below the EU-wide average of 8.5%.

Foreign TradeEstonia is part of the European Union, and its trade policy is conducted in Brussels.

Estonia's business attitude toward the United States is positive, and business relations between the two countries are increasing. The primary competition for American companies in the Estonian marketplace is European suppliers, especially Finnish and Swedish companies.

Total U.S. exports to Estonia in 2005 were $138.4 million, forming 1.4% of total Estonian imports. In 2005 the principal imports from the United States were electronics, iron and steel, and machinery. Estonian exports to the United States grew 27% in 2005 to $240 million, making the U.S. Estonia's eighth-largest export market. U.S. imports from Estonia are primarily mineral fuels and oils, wood and wood products, and electronics.

Estonia's economy benefits from its location at the crossroads of East and West. Estonia lies just south of Finland and across the Baltic Sea from Sweden, both EU members. To the east are the huge potential markets of northwest Russia. Estonia's modern transportation and communication links provide a safe and reliable bridge for trade with former Soviet Union and Nordic countries. Many observers also see a potential role for Estonia as a future link in the supply chain from the Far East into the EU.

Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's CD-ROM or via the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. Country Commercial Guides can be accessed via the World Wide Web at the U.S. Department of Commerce's site and at the U.S. Embassy in Tallinn's website at http://estonia.usembassy.gov/commguide.php. They also can be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information/assistance and country-specific commercial information should contact the U.S. Department of Commerce, Trade Information Center by phone at 1-800-USA-TRAD(E) or by fax at 1-202-482-4473.

DEFENSE

Estonia's regular armed forces--the Estonian Defense Forces--in peacetime number about 3,800 (Army 3,300, Navy 300, Air Force 200) persons, of whom about 1,500 are conscripts. The President of Estonia is the Commander in Chief of the Estonian Defense Forces. The National Defense Council, composed of the Chairman of the Parliament, the Prime Minister, the Chief of the Defense Forces, the Defense Minister, the Minister of Internal Affairs, the Minister of Foreign Affairs, and the Chairman of the Parliamentary National Defense Committee, advise the President on national defense matters.

Estonia officially became a member of the North Atlantic Treaty Organization on March 29, 2004 after depositing its instruments of treaty ratification in Washington, DC. The United States and Estonia cooperate intensively in the defense and security field.

Estonian defense spending has increased 13% annually since 2001. The Government of Estonia has expressed a firm commitment to meet the NATO goal of spending 2% of GDP by 2010; its current defense budget is 1.8% of GDP. In 2006, Estonia had deployed approximately 300 military personnel to support UN, NATO, and coalition military operations around the world and will increase its commitment in 2007. That number represents almost 10% of Estonia's military, a good indication of Estonia's willingness and ability to contribute to global security. Estonia currently has troops in Afghanistan, Iraq, Kosovo, and Bosnia.

FOREIGN RELATIONS

Estonia is party to most major international organizations. It is a UN, EU, and NATO member and a strong ally and partner of the United States on all fronts. It is deeply committed to good transatlantic relations and to promoting democracy and free-market economic policy globally.

In the E.U., Estonia's priorities include supporting continued EU enlargement; raising EU competitiveness through innovation; joining the Eurozone; developing a unified European energy policy; enhancing and fostering the European Neighborhood Policy; and improving the EU relationship with Russia.

Estonia has active development assistance programs in many of the former Soviet countries (with a focus on Georgia, Ukraine, and Moldova), as well as in Afghanistan.

U.S.-ESTONIA RELATIONS

The relationship between Estonia and the United States of America has been constant and strong since Estonia first became independent. The United States and Estonia are important allies and partners.

The United States recognized the Republic of Estonia on July 28, 1922. The first Estonian diplomatic mission in the United States was opened in the same year. It continued its activities throughout the period of occupation by the Soviet Union from 1940 to 1991. The U.S. Government recognized Estonia's diplomatic mission as a legal representative of the Republic of Estonia. Indeed, the recognition of the legal continuity of the Republic of Estonia has been the cornerstone of Estonian-U.S. relations.

The U.S. reopened its Embassy in Tallinn on September 4, 1991, soon after the restoration of Estonia's independence on August 20, 1991. Relations between the two countries have since developed at a rapid pace. In November 2006, President George W. Bush was the first sitting U.S. president to visit Estonia. During the visit, he announced the administration's intention to work with the U.S. Congress to make changes to the U.S. Visa Waiver Program, increasing security while facilitating entry for legitimate visitors and businesspeople from countries like Estonia.

Mr. Jüri Luik has been Estonia's Ambassador to the United States since September 2003. Estonia also is represented in the United States by a Consulate General in New York and three Honorary Consuls: Jaak Treiman in Los Angeles, Mart Kask in Seattle, and Scott E. Schul in Maine.

The U.S. Embassy in Estonia is located at Kentmanni 20, Tallinn [tel. (372) 66 88 100].

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